Seeing Like the IMF: Institutional Change in Small Open Economies

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Seeing like the IMF: Institutional change in small openeconomies

Online Publication Date: 01 October 2007To cite this Article: Broome, André and Seabrooke, Leonard (2007) 'Seeing like theIMF: Institutional change in small open economies', Review of International PoliticalEconomy, 14:4, 576 - 601To link to this article: DOI: 10.1080/09692290701475346URL: http://dx.doi.org/10.1080/09692290701475346

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7 Review of International Political Economy 14:4 October 2007: 576–601

Seeing like the IMF: Institutional changein small open economies

Andre Broome1 and Leonard Seabrooke2

1University of Birmingham and 2Copenhagen Business School & TheAustralian National University

ABSTRACT

The International Monetary Fund spends most of its time monitoring itsmember states’ economic performance and advising on institutional change.While much of the literature sees the Fund as a policy enforcer in ‘emergingmarket’ and ‘frontier’ economies, little attention has been paid to exploringthe Fund’s bilateral surveillance of its Western member states. This articleproposes that ‘seeing like the IMF’ provides a dynamic view of how theFund frames its advice for institutional change. It does so through ‘asso-ciational templates’ that do not blindly promote institutional convergence,but appeal for change on the basis of like-characteristics among economies.Many Western states, particularly small open economies, consider the Fund’sadvice as important not only for technical know-how, but because Fund as-sessments are significant to international and domestic political audiences.This article traces the Fund’s advice on taxation and monetary reform to twocoordinated market economies, Denmark and Sweden, and two liberal mar-ket economies, Australia and New Zealand, from 1975 to 2004. It maps howthe Fund advocated ‘policy revolutions’ and ‘policy recombinations’ dur-ing this period, advice that coincided with important institutional changeswithin these small open economies.

KEYWORDS

IMF; surveillance; institutional change; coordinated market economies; lib-eral market economies; taxation policy; monetary policy.

INTRODUCTION1

The Fund’s surveillance comprises the core of its mandate and is centralto its contemporary global role. The Fund’s main decision-making body,the Executive Board, now spends approximately 60 percent of its timediscussing economic surveillance (Van Houtven, 2002: 15), and most staff

Review of International Political EconomyISSN 0969-2290 print/ISSN 1466-4526 online C© 2007 Taylor & Francis

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7 BROOME AND SEABROOKE: SEEING LIKE THE IMF

members spend the majority of their time working on surveillance-relatedactivities (Pauly, 1997: 41). As Harold James observes: ‘The rule of BrettonWoods has been replaced by knowledge’, with the Fund’s surveillance ex-ercises creating an ‘information standard’ to replace the dollar standardof the Bretton Woods era (1996: 612; cf. Best, 2005: Chapter 6). However,international political economy scholars have paid surprisingly little at-tention to exploring the Fund’s bilateral surveillance of its non-borrowing,industrialized member states (for recent contributions, see Momani, 2006;and Clift and Tomlinson, 2004). We seek to address this gap in the literatureon the Fund by mapping the evolution of the Fund’s bilateral surveillanceof and advice to four Western states.

While the Fund is most commonly known for its role dealing with‘emerging market’ and ‘frontier’ economies, it also spends a significantamount of its time conducting bilateral surveillance of institutional changein Western states. The Fund’s advice is not always influential, nor can italways act autonomously. As with Fund conditionality in loan programs(see Momani, 2004), major powers like the US sometimes seek to use Fundsurveillance of non-borrowing states as a tool to achieve their own strate-gic ends. For instance, the US Treasury has recently made calls for theintensification of multilateral analysis in the Fund’s bilateral surveillanceto identify global exchange rate imbalances (read: US–China trade deficit)(Adams, 2006). The UK has also supported multilateral surveillance tofurther ‘transparency’ (King, 2006).

These recent examples indicate that the Fund’s surveillance role contin-ues to be deemed important by its dominant member states. However, asthe literature on the Fund’s relations with its borrowing member statessuggests (Stone, 2002), we can expect the Fund to exhibit greater auton-omy from major power interference in countries that are of less systemicor strategic importance, such as the cases of the small open economies weexplore here. Other scholars have shown that non-major power Westernstates consider change within the Fund to be important, as evidenced bytheir competition for influence on the Fund’s Executive Board (Woods andLombardi, 2006) and by their commitment of the scarce time of nationalofficials to talk with Fund staff (Pauly, 1997: 41). We identify three mainreasons for why Western states might consider the Fund’s bilateral surveil-lance and advice to be important:

1. The diffusion of technical knowledge. States consider the Fund to have an ad-vantage in comparative knowledge of institutional change, because theFund regularly monitors institutional experiments across all its memberstates.

2. Signalling to an international audience. If the Fund gives a negative as-sessment of a non-borrowing country it may affect its credit rating andfinancial markets. Fund membership legally obligates states to explain

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7 REVIEW OF INTERNATIONAL POLITICAL ECONOMY

their economic policy choices and states risk being ‘shamed’ before theirpeers in Executive Board discussions.

3. Signalling to a domestic audience. Fund assessments may be used by do-mestic political actors to claim support for or to criticize a particularpolicy stance, and may be used by officials to argue for institutionalchange or continuity in bureaucratic contests.

Following the introduction of the second amendment to its Articles ofAgreement in 1978, which charged the Fund with exercising ‘firm surveil-lance’ over its member states’ exchange rate policies, the Fund has gradu-ally expanded its surveillance role over a wide range of economic policiesand institutions in all its member states (James, 1996: 270–6). As an inter-national organization often seen as being at the forefront of globalization,commentators often impute the notion that the Fund has a ‘one size fits all’model of how economies should reform to become more institutionally effi-cient (Woods, 2000; Feldstein, 1999; Stiglitz, 2002). The Fund, as we demon-strate below, does have a clear view on how economies can become moreinstitutionally efficient, but the standard depiction of policy homogeneityblinds us to how the Fund has ‘templates’ for different types of economies,which leads to variation in the analysis and data that is generated througheach Fund mission (Seabrooke, 2007). The point here is that the Fund doesnot send staff missions to its member states simply to gather economicdata, which is then transmitted to the Fund management and ExecutiveBoard as an unmediated snapshot of a country’s economic circumstances.Rather, country missions allow the Fund staff to interpret a country’s cur-rent economic circumstances and institutions by learning directly fromnational officials (Harper, 1998: 120), the actors who actually ‘work at thecoal face’ with institutional experimentation. We should therefore view thestaff reports that are produced from Fund missions not as photographicrepresentations of how a country’s economy works, but as a descriptive in-terpretation by the staff that builds an analytic picture of what is going on inan economy and generates advice on how institutions may be improved.Templates provide the Fund staff with basic tools for thinking throughhow an economy can be ‘fixed’ through constant tinkering over time. Assuch, there is no pre-determined end point of an ‘ideal IMF economy’ thata mission team will push in their dialogue with a Western member state;instead, staff members use a combination of ‘IMF friendly’ policies and as-sociational templates to assist an ongoing process of institutional change.

Templates, as we see them, must be associational rather than universal.They are a reflection of how the Fund views an economy within groups oflike-units (often with a member state’s encouragement),2 rather than theFund imposing a homogenous template as a universal stamp of authority.Templates are generated by the institutional memory stored in the Fund’scountry desks in coordination with its policy departments. In this manner,

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the Fund’s ‘world’s best practice’ policies are commonly framed withinassociational templates – by comparing a state’s policy stance with alter-natives from states that the Fund sees as confronting similar challenges –to have greater legitimating force.

Our claim in this article is straightforward: by assessing institutionalchange through the eyes of the IMF, we can gain a dynamic picture of howstates were advised to revolutionize or recombine economic policies. Inthis sense, ‘seeing like the IMF’ may provide a unique insight into the slowgestation of institutional change over time. This does not mean that weshould uncritically adopt its judgments but, rather, that the Fund’s adviceprovides an important means of monitoring change over time in economiesthat are often viewed as exhibiting a more or less ‘fixed’ system.

Our wish to ‘see’ like the IMF is inspired by James C. Scott’s Seeing Likea State (1998). Scott emphasizes how the creation of technical knowledgerequires a ‘narrowing of vision’ (1998: 78), a process of abstraction and sim-plification that by increasing the legibility of a society increases the capac-ity of policymakers to design formal institutions to shape social behavior.While Scott sees a perfectly legible and transparent society as impossibleto realize in practice (1998: 80), his work invites us to recognize that howan authority sees an economy will shape its advice on what policymakersshould tinker with to improve institutional efficiency. Scott’s catalogue oferrors on how the way states see their societies permits them to plan institu-tional change therefore holds two key points of relevance for how the Fundsees its member states (1998: 3). First, the way the Fund sees an economyis only intended to represent the slice of economic activity that intereststhe Fund. While this narrow focus is usually put forward as a trenchantcriticism of the Fund, it is, after all, a result of the restricted focus that itsfounding member states built into the organization. It is also the basis forthe ‘scientific’ authority of the Fund’s advice (Barnett and Finnemore, 2004:67–8), and is efficient given the Fund’s (increasing) resource constraints.Second, how the Fund sees its member states’ economies informs howit seeks to remake their institutional frameworks over time, especially inconditions where the Fund staff can persuade policymakers to see new in-stitutional challenges in the same way as they do. Exploring how the Fundsees its member states’ economies may therefore allow us to understandhow an existing institutional framework becomes defined as a problem,how the causes of the problem are diagnosed, and how advice on potentialinstitutional solutions is generated.

The Fund is often seen in a negative light as an organization that seeksprimarily to impose Western (and especially ‘Anglo–American’) policystandards on the rest of the world. While such arguments retain analyticalpurchase at low levels of magnification of the Fund’s activities, we shouldalso consider that the Fund might be engaged in learning from states abouttheir own institutional experiments to build its stock of comparative policy

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knowledge, rather than simply promoting institutional convergence. Asthis study shows, an important component of the Fund’s work is to dif-fuse knowledge about institutional experiments among its non-borrowingWestern members – especially among those within the same associationaltemplate – and this is a role which the Fund often performs at the behestof states themselves.3

To assess how the Fund has sought to promote institutional change,we compare its advice on taxation and monetary reform to small openeconomies. We use primary source material from Fund archival documentsto compare advice given to what are considered to be two ‘liberal marketeconomies’ (LMEs), Australia and New Zealand, and two ‘coordinatedmarket economies’ (CMEs), Denmark and Sweden, from 1975 to 2004 (Halland Soskice, 2001). By commencing our study of the Fund’s advice to thesefour states in 1975, we incorporate the period in which the Fund sought toreinvent itself to maintain its relevance in the post-Bretton Woods era, afterit had been ignored during many of the key events of the early 1970s (Pauly,2006: 10). Taxation and monetary issues are targeted because they can beexpected to represent the extremes of how national economies change overtime, and constitute a vital part of the domestic policy nexus that shapeshow states engage the international political economy (Seabrooke, 2006a).Taxation is typically assumed to exhibit strong elements of national pathdependence that prohibits harmonization despite a purported ‘race to thebottom’ (Hobson, 2003), while monetary policy can be coordinated amongactors to achieve integration and an international consensus on exchangerate flexibility (McNamara, 1998).

Comparing Fund advice to these Nordic and Australasian economies isof particular interest because these economies have changed both rapidlyand gradually during the 30-year period of our study, and especially be-cause the Fund has little coercive power to make policymakers in thesecountries do anything against their will (Schafer, 2006: 75). We do not ar-gue that the Fund is the only, or primary, cause of institutional change in thestates under investigation. Indeed, we find that Western states are some-times willing to ignore Fund advice. We do suggest that in these four cases:(a) actors consider Fund assessments as potentially important signals fortheir domestic and international audiences; (b) actors seek comparativeknowledge from the Fund to lessen the transaction costs associated withnew policy experiments; and from (a) and (b), (c) how the Fund sees statesis important to how actors frame potential policy reforms, placing bound-aries on the ‘thinkability’ of different policy options, especially with regardto a state’s integration into broader economic processes of regionalizationand globalization. These factors are especially prominent during a periodof domestic economic uncertainty and crisis, or when the Fund judges that astate has ‘below average performance’ compared with states that share sim-ilar circumstances. As with its borrowing member states, it seems plausible

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that in a crisis the Fund’s advice to small open economies might help to‘tip the balance’ in favor of ‘IMF friendly’ reforms (Vreeland, 2003: 13–4),especially if there are ‘sympathetic interlocutors’ among a country’s poli-cymaking community who are willing to work with the Fund to achieveinstitutional change (Woods, 2006: 73). An important caveat here is thatit is difficult to substantiate the independent causal effect of the Fund’sadvice to Western states in the absence of the coercive sanctions that areobservable when states are dependent upon Fund resources. As such, ourconclusions here are only intended to be suggestive, and further work isrequired to test their validity.

The article proceeds as follows. First, we discuss how ‘seeing like theIMF’ can provide important insights into tracing economic reform overtime, including the notion of templates, which provide tools for achievinginstitutional change. Second, we provide a range of ‘IMF friendly’ policymixes for taxation and monetary reforms and assess their frequency in re-ports produced from the regular consultation exercises between the Fundstaff and national officials in the four economies in question, and in theminutes of the Fund’s Executive Board discussions. This information pro-vides an insight into when, and on what, the Fund advised our small openeconomies to engage in what we refer to as ‘policy revolutions’ or ‘policyrecombinations’ to achieve institutional change. Third, drawing on the fre-quency of ‘IMF friendly’ advice, we assess policy revolutions and policyrecombinations in the Australasian LMEs from 1975 to 2004. Fourth, wedo the same for the Nordic CMEs. Finally, we reflect on how ‘seeing likethe IMF’ provides a dynamic picture of the international organization’sbilateral policy surveillance and enhances our capacity for counterintu-itive insights into how small open economies have dealt with economicglobalization in the post-Bretton Woods era.

I : SEEING LIKE THE IMF AND ASSOCIATIONALTEMPLATES

One of the main complaints against the Fund is that the organization em-bodies an overly narrow and technocratic approach to understanding itsmember states’ economies, which leads it to inappropriately promote pol-icy harmonization (Leaver and Seabrooke, 2000; Momani, 2005, 2007; Onisand Senses, 2005). In contrast, we suggest that the Fund’s dialogical processof consultation and negotiation can help produce the necessary (though notby themselves sufficient) ideational conditions for institutional bricolage.This constitutes a process of evolutionary path-dependence, where institu-tional change is constrained by the range of existing institutional materialsthat actors have available to them in a given situation, suggesting that newinstitutions will usually have some degree of continuity with those they re-place or transform (Campbell, 2004: 70). Here actors may respond to new

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challenges by translating Fund advice for ‘IMF friendly’ institutional re-forms into their particular national context and recombining Fund advicewith a state’s existing institutional fabric over time (Crouch, 2005: 154).If the Fund has a broader view of institutional diversity across countriesthan its critics have acknowledged, this may also help to highlight areasof concern for institutional change that are difficult to see when it is as-sumed that the Fund’s agenda is geared exclusively towards encouraginginstitutional convergence.

When a state faces crisis conditions, or when a government is seeking toimprove ‘below average’ economic performance, national officials may seethe Fund as a vital source of expertise that can provide international com-parisons on appropriate policy options. In such circumstances, the Fundcan provide a ready source of institutional ‘roadmaps’, and can supplyofficials with comparative knowledge of reform outcomes elsewhere. Thisis not to imply a straightforward causal link whereby the Fund is able todetermine the direction of economic reform. Rather, we want to suggest thatthe Fund can be an influential source of ideas for institutional change byshaping the range of alternative choices that policymakers have at hand(see Chwieroth, 2007).

It is certainly true that there is a great deal of commonality among Fundpolicies, to the extent that we can sensibly discuss an ‘IMF friendly’ policymix, but universality is often overstated, especially because there is littlefollow-up on tracing policy implementation over time. Seabrooke (2006b)and Broome (2005) suggest that it is more common for the Fund to compareneighboring states, states within a region, or states that share common eco-nomic characteristics when evaluating and promoting specific institutionalinnovations. The Fund therefore constructs what we term associational tem-plates in order to customize ‘IMF friendly’ advice to its member states. Tem-plates are created according to, most commonly, regional types, but alsoaccording to the membership of international organizations. Fund staffreports and Executive Board meeting minutes commonly use signifierslike ‘Asian’, ‘Anglo Saxon’, ‘OECD’, or ‘EU’ to create templates for differ-ent kinds of economic systems rather than a universal model (Seabrooke,2006b; on the ‘European economy’, see Rosamond, 2002). Such associa-tional templates also provide legitimizing devices on why a member stateshould see the Fund’s seemingly universal policy mix as appropriate forits own context.

We find that the supply of new policy ideas and institutional innova-tions between the Fund and its member states is a two-way street, at leastin the case of the Fund’s policy dialogue with Western states. Our analysisof Fund archival documents and interviews suggests that national officialssee the Fund as having an advantage in comparative knowledge of policyreform. Other scholarship has also noted this point, but has found thatthe Fund does not convey its comparative policy knowledge to member

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states (Momani, 2006: 265), while the Fund’s biennial review of its surveil-lance exercises has highlighted the desirability of incorporating compar-ative analysis more systematically into its policy dialogue with nationalofficials (IMF, 2004: 19). We find from our study of these four cases that theFund does use cross-country comparisons in how it sees individual states,and that it does convey relevant comparative policy knowledge to nationalofficials in some cases.

II : IMF FRIENDLY REFORMS

The Fund annually conducts Article IV consultations with its memberstates to assess their economic performance. In addition, Fund staffconduct surveys, compile statistics, and conduct research on all theirmember states – not only ‘emerging market’ and ‘frontier’ economies.Within the Fund, Article IV consultations are communicated throughstaff reports written by members from the relevant area and policydepartments (see Harper, 1998: Chapter 9). These reports detail currenteconomic developments and trends, areas of concern in the economyand, importantly, staff appraisals detailing what should be reformed.Staff reports commonly compare an economy according to templates.The Fund’s Executive Board then comments on these reports, with a staffrepresentative on the state under discussion also present. The archivalmaterials provide a clear means to trace Fund advice to our chosen smallopen economies over a 30-year period.

In order to trace Fund advice over time to Australia, Denmark, NewZealand, and Sweden, we have coded Fund staff reports from Article IVconsultations and subsequent Executive Board meetings for the frequencyof ‘IMF friendly’ taxation and monetary reforms. As we have targetedcertain types of reforms on taxation and monetary policy, our assessmentof frequency is qualitative and context-sensitive rather than quantitativeword recognition. On taxation we have coded an ‘IMF friendly’ mix asfollows:

ζ−• Suggestion of increase in indirect taxes (primarily VAT) (+2, −2).ζ−• Suggestion of reduction of trade and transaction taxes (+2, −2).ζ−• Suggestion of broadening of direct taxes (income) (+2, −2).

For example, if the Executive Board proposed that the state should in-troduce a consumption tax, that it should reduce tariffs, and that it should‘broaden’ income taxes, to maximize fiscal revenue by flattening tax ratesand increasing compliance to target the wage packets of the majority ofthe population, this would represent 6 points. If the staff also advised thesame then we would receive a total, and maximum, 12 points. As we cansee from Figures 1–4, this is rare.

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Figure 1 IMF friendly advice to New Zealand on taxation and monetary reform.

On monetary systems we have coded an ‘IMF friendly’ mix asfollows:

ζ−• Suggestion of floating exchange rate reform (+2, −2).ζ−• Suggestion of public debt decrease (+2, −2).ζ−• Suggestion of interest rate liberalization (+2, −2).

If the Executive Board advised a state to change to a floating exchangerate, to decrease its public debt, and to liberalize interest rates then onmonetary systems we would have 6 points. If the staff advised the samethen a maximum 12 points is obtained. Again, as our figures show, this isnot common.

At first, Figures 1–4 provide an overly complicated story of the frequencyof ‘IMF friendly’ advice from the Fund to our four chosen states. However,upon closer inspection we may notice some clear differences among them.As we can see, the Fund is particularly vocal about New Zealand in the late-1970s and early-1980s, as well as, less frequently, Australia in the late-1980sand 1990s. In comparison, the Fund’s advice to Denmark and Sweden isless frequent but persistent. We separate the moments of high frequency asindicators of potential ‘policy revolutions’, whereas persistent but lowerfrequency advice is tinkering that seeks to foster ‘policy recombinations’.Together, high and low frequency, revolutionary and recombinant, Fundadvice seeks to build institutional efficiency.

On tax reform, where the range of possibility on the y axis is +/–12,New Zealand is notable for the Fund’s promotion of a policy revolu-tion in the late-1970s and 1980s, particularly as the high frequency of‘IMF friendly’ advice in the latter period corresponds with sweeping‘neoliberal’ economic reforms. Australia is also a candidate for policy

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revolutions, especially during moments in which major changes to rev-enue, such as the introduction of a consumption tax, were under debate.For Denmark the story here is of interest given the lack of advice and thefact that the Fund also contradicts our ‘IMF friendly’ policy mix. Changehere is more often recombinant than revolutionary. Similarly, Swedenhas received a relatively constant level of advice, and here the Fundwants income tax reduction rather than seeking to install a new taxationsystem.

On monetary reform we have a remarkable amount of similarity after1994. Once again the range of possibility on the y axis is +/–12 (tax andmoney combined as ‘IMF overall’ is +/−24). Our figures suggest that mon-etary systems are easier to integrate than taxation systems, which speaksvolumes on what aspects of the economy are more politically sensitive andpath dependent under economic globalization. Still, New Zealand standsout as a state where the Fund frequently advocated a policy revolution inthe late-1970s and 1980s. There are also key moments for policy revolutionsin Australia, in Sweden (primarily over the reduction of public debt), and inDenmark (primarily over putting the budget in surplus). In the followingsections we separate policy revolutions and policy recombinations withinthe two LME Australasian and two CME Nordic economies, with someunanticipated results.

III : THE IMF AND AUSTRALASIAN ECONOMIES

On some measures, such as tariff walls, the Fund saw Australia and NewZealand as comparatively ‘closed’ market economies at the start of ourstudy. In the 1970s, both Australia and New Zealand were under the ju-risdiction of the Fund’s European Department along with Sweden andDenmark, but in 1992 Australia and New Zealand were reassigned to theSoutheast Asia and Pacific Department (renamed the Asia and Pacific De-partment from 1997), as the Fund restructured its area departments toaccommodate a large number of new member states from Eastern Eu-rope and the former Soviet Union. Many of the tax and monetary changesthat occurred in both countries during the 15-year period after 1983–1984were broadly similar in nature, but there were nonetheless clear differ-ences in how Australia and New Zealand were viewed through an Aus-tralasian (or an ‘Anglo Saxon’) template. These differences between theFund’s view of Nordic and Australasian economies were reflected in thepace, scope, and style of reforms in Australia and New Zealand to enhancetheir institutional efficiency (for comparisons of economic reform in Aus-tralia and New Zealand, see Castles et al., 2006; Hazledine and Quiggin,2006).

In its relationship with Australia prior to 1983 and with New Zealandprior to 1984, the Fund urged governments to adopt similar reforms

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on taxation and monetary policies, seemingly without much success.The Fund wanted governments to restructure the fiscal balance from‘direct’ taxation (on personal income and company profits) toward‘indirect’ taxation (on consumer goods); to broaden and decrease theprogressiveness of income taxation; and to shift from import licensing andother quantitative trade barriers to tariff barriers, then to lower tariffs overthe medium-term. The Fund argued that these changes would improveeconomic competitiveness, improve institutional capacity to adjust to anew external environment following the oil price shocks and the shiftaway from fixed exchange rates in the 1970s, and improve the state ofpublic finances that had deteriorated as the rate of economic expansionslowed (IMF, 1977, 1978a, 1979, 1980).

On the reform of monetary institutions, from the mid-1970s the Fundwanted Australia and New Zealand to shift to a more flexible exchangerate regime and to liberalize interest rates, as well as to decrease the sizeof their ballooning public debt (IMF, 1979, 1983a,b). After both govern-ments moved at the end of the 1980s to adopt monetary frameworks basedon achieving and maintaining low inflation, the Fund encouraged themto enhance the institutional efficiency of their central banks by makingtheir decision-making processes more ‘transparent’. The Fund argued thiswould increase their capacity to communicate their credibility to interna-tional and domestic audiences (see Bell, 2002; Dalziel, 1993; Lu and In,2006). The Fund also sought to diffuse New Zealand’s 1989 institutionalinnovation of setting an explicit ‘inflation target’ to Australia (IMF, 1991a).Australia incrementally translated this innovation to match its own par-ticular circumstances, setting an implicit inflation objective from 1993 as a‘central tendency’, to be achieved on average over the business cycle, ratherthan a rigid inflation ‘range’ like New Zealand (IMF, 1996a). Despite thebroad similarities in the advice on tax and monetary reform that the Fundpromoted in both New Zealand and Australia, the Fund’s view from staffreports and Executive Board meeting minutes suggests that the promo-tion of ‘IMF friendly’ institutional reforms was pushed more rigorously inthe New Zealand case than in the Australian case. Moreover, the strengthwith which arguments were delivered ebbed and flowed over time, andthe Fund’s advice switched to strengthening governments’ resolve to ‘staythe course’ once they had embarked upon the Fund’s preferred directionof institutional reform.

Policy revolutions

In New Zealand, the Fund’s most frequent advice for the adoption of newinstitutional solutions occurred at the beginning of the 1980s (see Figure1), when the country faced chronic ‘stagflation’ caused by historically highlevels of unemployment and inflation. In particular, the Fund wanted to

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see a broadening of the tax system as a way of moderating wage claims, aswell as a shift from quantitative trade restrictions such as import licensingto a more liberal system of qualitative tariffs (IMF, 1981a). With economicindicators worsening during 1982, the Fund criticized the government’sadoption of tight controls on wages, prices, and interest rates as wellas its refusal to devalue the nominal exchange rate to combat inflation,and urged the government to reduce the rapidly increasing level ofpublic debt. In terms of the government’s stated goal of reforming the taxsystem, the Fund favored the adoption of a broad-based consumption tax,but recommended that policymakers ‘raise the community’s awareness’about what it saw as a policy trade-off between either reducing taxes ormaintaining ‘long-standing social preferences for income equity and highlevels of welfare’ (IMF, 1983a). As with the other countries in this study,the Fund’s evaluation of New Zealand was not based solely on bracketingout domestic political and social concerns from the ‘economic distortions’and ‘misallocation of resources’ that the staff predicted such measureswould produce, but included discussion of the political context withinwhich the government had resorted to these measures. In New Zealand’scase, this context involved: (1) the failure of an attempt to negotiate a socialconsensus with trade unions, whereby income tax cuts would have beenexchanged for wage moderation; (2) the negative consequences that wageand price controls would have for the ability of existing institutions tofunction effectively; and (3) the likelihood of declining public acceptanceof the controls over time (IMF, 1983a).

The Fund’s overall advice on institutional reforms in New Zealandpeaked in the mid-1980s. New Zealand seemed to be ripe for an ‘IMFfriendly’ policy revolution in 1984 following a currency crisis, the electionof a new Labour government more receptive to the Fund’s advice oninstitutional change, and with the New Zealand Treasury firmly in favor ofeconomic liberalization (see McKinnon, 2003: Chapter 8). In a remarkablyshort period of policy revolution, New Zealand adopted many of theinstitutional reforms that the Fund had been promoting for the previousten years, leading the Fund to praise the government for having ‘embarkedon a courageous and enlightened course in setting economic policy’ (IMF,1985a). Key changes included the liberalization of trade protections, theadoption of flexible interest rates and a floating exchange rate regime,reduction of the budget deficit, and a shift in fiscal policy away from thetaxation of income and towards consumption. During this period NewZealand turned to the Fund for extensive advice based on its comparativepolicy knowledge. This is indicated by New Zealand’s formal requests for‘technical assistance’ from the Fund on the design and implementation ofa new goods and services tax (IMF, 1984a, 1985b) and for a wide-rangingreview by the Fund of the functions, operations, and goals of its InlandRevenue Department (IMF, 1988a). As the director representing New

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Figure 2 IMF friendly advice to Australia on taxation and monetary reform.

Zealand noted to the Fund’s Executive Board, the country’s policy reforms‘conform very closely with the approach that the Fund has advocated inrecent consultations’ (IMF, 1985c).

In Australia, the Fund’s advice on reforming tax and monetary institu-tions largely followed a similar trend to its advice in New Zealand, butthe frequency of ‘IMF friendly’ policies in the Fund’s overall advice toAustralia remained consistently below New Zealand’s level during thelate 1970s and 1980s (see Figure 2). Like New Zealand, the frequency ofthe Fund’s advice peaked in the half decade following the election of anew Labor government in 1983 that appeared to be more receptive to el-ements of the Fund’s advice, especially on monetary reform to enhanceinstitutional efficiency (IMF, 1985d). The Fund showed great interest in thePrice and Incomes Accord that the new government put in place to securethe cooperation of trade unions, businesses, and social welfare bodies inmoderating wage claims to avoid an inflationary spiral. While noting thedifficulty of sustaining a ‘consensual’ approach in Australia over time, theFund’s Executive Board nonetheless gave the government credit for devel-oping a novel mechanism in an attempt to progress beyond the limits ofAustralia’s historical pattern of industrial conflict. Significantly, several di-rectors observed that there was no a priori reason why such a social compactcould not be successful (IMF, 1985e), despite the recent failure of the NewZealand government to negotiate a similar agreement with trade unions.This runs counter to the Fund’s apparent preference (and the conventionalwisdom in the academic literature on the Fund) for the exclusive use ofmarket mechanisms such as flexible interest rates and exchange rates tomanage inflationary expectations, and indicates the Fund’s support for an‘IMF friendly’ policy mix to be recombined with domestic policy innova-tions through bricolage.

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Following a decline in Australia’s economic performance, with risinginflation and a deteriorating balance of payments, the consistency of theFund’s advice for further ‘IMF friendly’ institutional change spiked up-wards in 1989. While still not directly critical of the government’s prefer-ence for a negotiated settlement of wage claims and the setting of tax rates,the Fund urged the government to adopt a better ‘policy mix’ that couldprove more sustainable in enhancing institutional efficiency over time. Inparticular, the Fund viewed Australia as having a relatively low share ofrevenue derived from consumption taxes, and advised the government toreorient taxation away from income toward consumption. The Fund alsoencouraged the government to reduce tariff rates further, to stabilize andthen reduce public debt, and, while cautious about the short-term effectsof exchange rate depreciation, to allow the exchange rate to adjust to ‘realshocks’ over the long term, with central bank intervention restricted tosmoothing ‘temporary’ exchange rate fluctuations (IMF, 1989a).

Policy recombinations

In the cases of New Zealand and Australia, the key push from the Fund for ashift from import licenses and other quantitative trade restrictions to tariffscame in the mid- to late-1970s and early 1980s. While the push for tariffreduction was a constant refrain from both the Fund staff and the ExecutiveBoard, by the mid-1990s both countries had removed the majority of theirtariffs and the Fund’s advice was geared toward maintaining the existingpolicy orientation rather than seeking to shift governments to a new policytrajectory. Similarly, once each state embraced ‘IMF friendly’ reforms suchas a flexible exchange rate regime and liberalized interest rates, furtherreforms in these areas did not form a large part of their policy dialoguewith the Fund.

In its 1990 consultation with Australia, for example, the Fund notedthat the government had acted on some of its previous concerns and thatpolicymakers now agreed with the Fund on other elements of its advice,indicating that the Fund was now dealing with ‘sympathetic interlocutors’in the country’s policymaking community (Woods, 2006: 73). This includedagreement between the Fund and Australian officials on the limited eco-nomic benefits of using monetary policy to drive down the exchange rateto enhance trade competitiveness or reducing interest rates to stimulateinvestment. The Fund therefore urged Australia to ‘stay the course’ tocontinue to benefit from institutional reforms, as well as to establish thegovernment’s policy credibility and thus anchor economic actors’ expec-tations as they adjusted to a new ‘IMF friendly’ institutional environment(IMF, 1990a). Notably, in both Australia and New Zealand the Fund framedits advice as offering a way for governments to send a confidence-boostingsignal to domestic and international audiences, especially with regard to

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the need for urgent action to reduce budget deficits in the late 1980s andearly 1990s (IMF, 1987, 1992).

One component of the Fund’s advice on increasing institutional effi-ciency continued to be pushed vigorously long after the previous policytrajectory had changed – the reduction of income taxes. The Fund con-tinued to prompt Australia and New Zealand to reduce their ‘excessivelyhigh’ marginal tax thresholds and rates in order to ‘improve the incentivesfor saving and employment’ (IMF, 1998), and urged policymakers to alignthe top rate of income tax in each country with the company tax rate todiminish the incentives for tax avoidance (IMF, 2002). However, we shouldbe cautious about seeing the IMF’s clear advocacy for tax reform as proofof a ‘neoliberal’ agenda on low tax. Here it is worth noting that the Fundwarned New Zealand against its plans for income tax cuts in 1997 (IMF,1997a). Furthermore, the Fund advised against tax cuts for the next twoyears in its discussions with New Zealand officials in May and June 1999(IMF, 1999), in the run up to a November election where tax cuts versus anincome tax rise to pay for an increase in social spending was a major issueof political contention (Broome, 2006).

The main divergence in the Fund’s advice on taxation reforms betweenAustralia and New Zealand in the 1990s resulted from the Fund’s pro-motion of a general consumption tax in Australia, which New Zealandhad adopted with the Fund’s advice in the 1980s (IMF, 1996b, 1997b). OnceAustralia eventually introduced a Goods and Services Tax in the late 1990s,and both countries adopted and gradually achieved the objective of de-creasing public debt, the advice for ‘IMF friendly’ institutional change ontax and monetary policy that the Fund developed over the period of thisstudy was well-established. The Fund’s ongoing dialogue with these coun-tries from the mid-1990s mostly revolved around the promotion of twoaims. First, the recombination of fiscal and monetary policies to achievemore efficient outcomes in the context of specific political goals; and, sec-ond, encouraging new governments (in 1996 in Australia and in 1999 inNew Zealand) to maintain an ‘IMF friendly’ institutional framework.

IV: THE IMF AND THE NORDIC ECONOMIES

Unlike Australia and New Zealand in the early 1970s, the Fund viewedSweden and Denmark as comparatively ‘open’ economies (cf. Katzenstein,1985: Chapter 2). The agricultural sector aside, the Nordic economies at thestart of this study maintained a low level of tariff protection for most sectorsof the economy. The only context in which tariffs are mentioned in theFund’s policy dialogue with Denmark is when the Fund praises Denmarkfor maintaining a liberal trading regime, within its European Community(EC) obligations, despite facing deteriorating terms of trade in the 1970sand early 1980s (IMF, 1975, 1984b). In Sweden, the Fund also commended

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the government’s support of trade openness and its low level of tariffprotections (IMF, 1983c), while encouraging policymakers to reduce orremove remaining tariffs on textiles and agriculture in the mid-1980s (IMF,1986a).

In significant respects, the Fund viewed the Danish and Swedisheconomies through an EC template that led to an emphasis on institu-tional change in a manner quite different to the Australasian economies.That the Fund viewed these states through an EC template (and that the ECis the basis for comparison for Sweden even before the country joined theEuropean Union in 1995) rather than a ‘Nordic’ template is itself of interest(especially given the emphasis within the region on similarities betweeneconomies, see Mjøset, 1987). It illustrates how the Fund saw the EC as aproject unto itself, choosing to stress how Denmark and Sweden shouldbehave according to EC benchmarks, rather than to Nordic benchmarks.This also contradicts the notion of a universal IMF programmatic discourseto enhance institutional efficiency in a country’s taxation and monetaryarchitecture.

For example, while the Fund wanted Denmark and Sweden to ‘broaden’income taxation by reducing the top marginal rates and thresholds likeAustralia and New Zealand, income tax policies in Denmark and Swedenwere specifically assessed against an EC template (IMF, 1981b, 1988b,1997c). Unlike the Australasian economies, the Fund viewed the Nordiceconomies as already having overly high rates of indirect consumptiontaxes – again in comparison with the EC average. While the Fund sawDenmark as a high income tax country ‘by international standards’, Fundstaff emphasized in 1989 that Denmark had a rate of indirect taxation thatfar exceeded most other EC countries, and was unique in setting VAT ata single rate while most other EC economies set VAT at two or more lev-els (IMF, 1989b). On monetary institutions, Denmark remained within theEuropean Monetary System during the 1980s, while Sweden pegged thekrona to a basket of currencies after it left the European Currency Snakein August 1977 and devalued the krona by ten percent. When the Nordiceconomies made it clear to the Fund that they would continue to pursuestable exchange rates within a semi-fixed exchange rate regime, the Fundvoiced support for this policy, and encouraged governments to use a fixedexchange rate to stabilize inflationary expectations and to secure the con-fidence of international and domestic audiences in their policy intentions(IMF, 1989b).

Policy revolutions

The frequency with which the Fund’s advice to Denmark matched an‘IMF friendly’ policy mix peaked on three occasions over the periodof our study: in the late 1970s, in the mid-1980s, and in the mid-1990s

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Figure 3 IMF friendly advice to Denmark on taxation and monetary reforms.

(see Figure 3). In 1977, the Fund stepped up its advocacy of a policy revolu-tion to implement institutional change to cope with deteriorating economicperformance, with the country suffering from a ballooning current accountdeficit, stagnant growth, and weak domestic investment. The Fund staffsupported moves to raise indirect taxes to dampen consumer demand forimports and for flexible interest rates to constrain inflation, while the Ex-ecutive Board also encouraged Denmark to lower income taxes, pay downpublic debt, and adopt a more flexible exchange rate regime to aid externaladjustment and international economic integration (IMF, 1978b,c).

The next peak in the content of Fund advice in the mid-1980s followedseveral years of economic reform under a new Conservative governmentelected in 1982 (Mjøset, 1987: 446). Here the advice of the Fund centered onthe need for Denmark to push forward with reform of the tax system, tolower income tax rates and to eliminate tax deductions to improve individ-ual incentives and private savings. The Fund advised Denmark to achievetax reform through lower public spending, and to gradually move towardachieving a ‘structural budget surplus’ to compensate for low levels of pri-vate savings and lower public debt (compared with a budget deficit thatreached nine percent of GDP in 1982, Gaard and Kieler, 2005: 5). As withthe other countries in this study, the Fund explicitly framed its advice asa way for Denmark to send a positive signal to an international audience,with Fund staff arguing that achieving a structural budget surplus wouldshore up the country’s credit rating in financial markets. The Fund staffalso compared the country’s current account balance with those of otherEC countries, and suggested that Denmark’s current account would haveto converge with EC trends to avoid undermining the fixed exchange rateregime (IMF, 1986b). Denmark implemented some of the Fund’s advice

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Figure 4 IMF friendly advice to Sweden on taxation and monetary reforms.

on tax reforms in 1987 by reducing the tax deductibility of mortgage in-terest payments to increase savings incentives, with significant political,economic, and social fallout (Mortensen and Seabrooke, 2007). Policymak-ers recombined this ‘IMF friendly’ move with the ‘potato diet’ policy shiftthe state had embarked upon in 1986, which strengthened existing admin-istrative controls over mortgage credit (Gaard and Kieler, 2005: 8). The lastpeak in Fund advice to Denmark occurred in the mid-1990s, but this canmostly be accounted for by the Fund’s renewed drive for Denmark to shiftthe fiscal balance to indirect taxation (IMF, 1995).

The four peaks in the frequency of our ‘IMF friendly’ policy mix inthe Fund’s dialogue with Sweden were in 1981, 1983, 1986, and 1993(see Figure 4). In 1983, the Fund staff strongly recommended a policy revo-lution, advising Sweden to broaden income taxes, liberalize interest rates,and reduce public debt, while Executive Directors added a recommenda-tion for a floating exchange rate reform (IMF, 1983c,d). This advice followedseveral years of large current account deficits, large budget deficits, highinflation, and falling levels of domestic savings, leading to the election ofa new Social Democrat government in 1982 (Mjøset, 1987: 446). While pre-vious governments had responded to economic difficulties by expandingpublic borrowing to fund increases in spending and to maintain domesticeconomic activity, the rapid rise in public debt and growing budget deficitsled the Fund to call for immediate fiscal retrenchment and institutional re-form over the medium-term to put the state back on a fiscally sustainablesetting. Put bluntly, the Fund argued that Sweden could no longer afford itsprized welfare state, and instead needed to pare back social transfers andindustry subsidies, reduce income taxes, and hold down wages to regaincorporate profitability and improve its international competitiveness (IMF,

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1983c,d). Within Sweden, academic economists and, increasingly, policy-makers gradually made a ‘neoliberal ideational shift’ constructed aroundthe notion that an excessively large public sector was a policy problem(Blyth, 2001: 17).

The Fund saw Sweden in the early 1980s as a recalcitrant state, unwillingto face the economic realities of the ‘brave new world’ of the post-BrettonWoods era and initially unresponsive to the Fund’s call for a policy rev-olution to improve its economic performance. In the second peak in theFund’s advice for an ‘IMF friendly’ policy revolution in 1986, previousgovernments received harsh criticism from the Fund, with the staff judgingthat ‘Sweden’s tardiness in adjusting to the two major oil price increases ofthe 1970s was responsible for weak economic performance in the decadeto 1982’ (IMF, 1986a). Sweden’s response was a ‘November Revolution’in 1985 to deregulate domestic credit markets, which involved liberalizingbank interest rates and removing all ceilings on loans (Svensson, 2002: 200).

Similar to Denmark, Sweden maintained a fixed exchange rate regimeduring the 1980s, albeit with large discrete adjustments such as a ten per-cent devaluation in 1981 and a further 16 percent devaluation the followingyear (Anderson, 1990: 196). The size of Sweden’s 1982 devaluation was op-posed by other Nordic finance ministers and central bank governors as wellas by Fund staff and the managing director, Jacques de Larosiere, whichprompted the new government to modify its original plan to devalue thekrona by 20 percent (Boughton, 2001: 111). Against the advice of the Fundfor a single digit devaluation, this action led to an Executive Board decisionto hold ‘special consultations’ with Sweden, with four IMF staff membersvisiting the country for a week of talks with officials in November 1982. Thisunprecedented situation for a non-borrowing member state was resolvedin a restricted session of the Executive Board on 22 December 1982 (IMF,1982), after the Fund staff urged the Swedish minister of finance, Kjell-Olof Feldt, to write to the managing director detailing a policy strategyto mitigate the potential adverse effects of the devaluation on neighboringcountries. Feldt agreed to do so on the condition that it would be a personalletter so that it could not be used against the government by oppositionparties (Boughton, 2001: 112–13), which indicates the salience of our pointthat the Fund’s policy dialogue can resonate with a domestic audience inWestern states.

Sweden’s fixed exchange rate regime was abruptly abandoned inNovember 1992 following a major currency crisis. In contrast to our ‘IMFfriendly’ ideal type, the Fund advised Sweden to decrease VAT in 1993 toconverge with EC countries, but the same year saw the most recent peakin the frequency of an ‘IMF friendly’ policy mix in the Fund’s dialoguewith Sweden. The focus here was almost solely on monetary reform, asthe country faced what the Fund called ‘its worst economic crisis since the1930s’, encompassing a series of speculative attacks against the Swedish

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krona, declining economic output, the highest level of unemployment inthe post-WWII era, an increasing fiscal deficit, and structural problems inthe banking system. The Fund saw these serious difficulties as resultingfrom structural defects in the institutional architecture of the state, espe-cially the high level of public expenditure that required a ‘cripplingly highlevel of overall taxation’ and fed a large fiscal deficit. Like the two previ-ous peaks in ‘IMF friendly’ advice for Sweden, the Fund framed its advicethrough an EC template, arguing that Sweden’s public spending had wellexceeded an affordable level, and that social transfer payments were ‘sub-stantially out of line’ with those in the EC (IMF, 1993).

Policy recombinations

In comparison with either Australia or New Zealand, the content of theFund’s advice to Denmark and Sweden on taxation and monetary reformwas more stable over the 30-year period of our study. Both the Fund staffand the Executive Board focused much of their advice on continuing toencourage the Nordic economies to broaden income taxes, and to reducepublic debt once it began to increase rapidly from the late 1970s. Follow-ing discussions about a floating exchange rate reform that surroundedDenmark’s entry to the European Monetary System in 1979, the Fund sub-sequently endorsed the country’s fixed exchange rate regime for the kroneas an appropriate policy mix for Denmark. Over time the staff concludedthat the fixed exchange rate had ‘served Denmark well, and . . . should con-tinue to guide monetary policy’, so long as the government maintained atight fiscal policy and recombined its policy mix by adopting more flexiblelabor market institutions (IMF, 1991b). Within the Danish ‘negotiated econ-omy’ from the mid-1980s through to the early-1990s, consensus-buildingamong trade unions, employer associations, and the state fostered anew attitude towards ‘structural competitiveness’ in the world economy(Campbell and Pedersen, 2007: 321–3), followed by innovative reforms toDenmark’s labor institutions and fiscal consolidation (IMF, 2006). By theend of the 1990s, when the level of public debt had declined and dimin-ished in frequency as a key concern of the Fund, only the level of incometaxation among our ‘IMF friendly’ policy mix remained as an outlyingreform issue (which had remained relatively stable over time, see Figure 3).

After the peaks in its advice to Sweden during periods of policy rev-olution in 1981–1983 and 1986, the Fund sought to gain greater policyrecombination at the end of the 1980s, especially the recombination of thefixed exchange rate regime with a decline in public expenditure and in-come taxation (IMF, 1990b). Following the next period of policy revolutionin the early 1990s, when the fixed exchange rate regime was abandonedand the krona’s value substantially depreciated, the Fund again encour-aged policy recombination, arguing that the level of public debt would

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have to be brought down in order to stabilize the currency and to allowa reduction in high interest rates. Sweden continued to be compared withEC countries when the Fund looked at its high level of social spending,and the Fund noted that despite official economic statements from thegovernment that emphasized the importance of reducing public debt andembracing the principle of tax reduction, actual budget measures agreedin the mid-1990s provided for tax increases (IMF, 1994).

V: CONCLUSIONS: THE ROLE OF THE IMF IN SMALLOPEN ECONOMIES

The Fund spends a great deal of its time assessing and learning from institu-tional change in its member states. For Western states the Fund is not a pol-icy enforcer. It does provide Western states with comparative knowledgeon the experience of implementing institutional change, all seen throughwhat we have called ‘associational templates’ and its favored economicpolicy orientations. The Fund’s capacity to learn and act as a source ofknowledge is particularly important for small open economies that are es-pecially sensitive to changes in the international political economy. In anera of globalization such economies must adapt to prosper, and, for goodor bad, the Fund has assisted these economies with policy advice. This ar-ticle demonstrates how ‘seeing like the IMF’ provides an insight into howthe Fund relates to Western states, how the Fund’s advice has changed inrecent decades, and how looking through the Fund’s eyes allows one tomap institutional change over time within a comparative context to under-stand how reform has been seen by the same actor. We also demonstratethat the Fund plays more than one role in giving advice; it acts as a diffuserof technical knowledge, a soothsayer to audiences in the international po-litical economy, and a weapon to be used by domestic political audiences.In sum, we have made four suggestive arguments here about the Fund’srole in Western states:

1. The Fund is useful to states as a source of comparative knowledge onpolicy reform and as a diffuser of institutional innovations.

2. The Fund sees economies through a number of associational templatesrather than blindly promoting institutional convergence.

3. The Fund’s advice is most likely to have a visible influence during peri-ods of uncertainty, crisis, or below average economic performance; butit continues to nudge states to recombine their policy mix on an ongoingbasis.

4. The Fund’s advice is most likely to shape the thinkability of alternativeeconomic reforms that policymakers choose from, rather than simplydetermining the direction of change.

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While we do find that the Fund uses ‘associational templates’, our inter-viewees confirmed a point, already suggested by Bessma Momani (2006:265), that Western states would prefer for the Fund to adopt a more OECD-like process of surveillance and consultation to become more directlydriven by the specific policy interests of individual states. Further researchmay develop insight into how the Fund, normally considered in the samebreath with neoliberal policy homogenization, actively seeks to tinker withWestern economies to enhance their institutional efficiency. Such findingshave important comparative lessons not only for Western states, but alsofor ‘emerging market’ and ‘frontier’ economies that are considered to beon the receiving end of Western-style institutional convergence. In closing,looking through the eyes of the IMF is useful to not only trace the policy de-cisions made, but also to gain some insight on why alternative options werenot taken. Discovering ‘non-decisions’, as Susan Strange (1988: 22) put it,is a useful corrective to an overly path dependent view of an economy andcan expose the sources of change in the international political economy.

NOTES

1 Our special thanks go out to Madonna Gaudette, Clare Huang, Premela Isaacs,and Jean Marcoyeux in the International Monetary Fund Archives, Washington,DC, for their research assistance during our numerous visits to the Fund. Wethank Fund policy staff and the staff of the macro-policy branches of the NewZealand Treasury and the Danish Ministry of Finance for generously affordingus time for interviews. We also thank three anonymous reviewers for RIPE,as well as Manuela Moschella, Ove K. Pedersen, and John Ravenhill for theirhelpful comments on earlier drafts. The views expressed in this article arethose of the authors, and do not represent the views of the Fund or nationalofficials.

2 Our thanks to a staff member of the Macroeconomic Policy Branch in the NewZealand Treasury for stressing this point.

3 For example, during the interview period in Denmark, the Fund was activelylearning from the Danish government about its policy experiment in ‘flexicu-rity’, which has already roused interest from other member states as a potentialpolicy model for emulation (IMF, 2006). This example is especially significantgiven that the Fund is commonly associated with the diffusion of ‘neoliberal’economic policies, while ‘flexicurity’ is an employment system that seeks tomitigate, not heighten, social risk.

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